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K.Venkatasubramanian

Though the market did not take kindly to the lowering of its guidance for the year, Infosys has bettered expectations and its own guidance to deliver reasonable earnings for the September quarter.

The company grew its revenues by 11.6 per cent sequentially to Rs 5,418 crore, while net profit increased by 10 per cent to Rs 1,432 crore. But Infosys has lowered its dollar revenue and earnings guidance (rupee guidance is unchanged) by five per cent for the financial year to reflect the rough macro-environment.

An improving service-mix towards higher value services, enhancement in key operating metrics to ensure volume growth, and improvement in fixed-price projects contribution to overall revenues are positives for the quarter. Rupee depreciation has also helped the revenue growth of the company, but the depreciation of other currencies such as the British pound and the Australian dollar against the US dollar has blunted some of this gain.

This is another reason for the lowered dollar guidance. But billing remains flat and the revenue from top 10 clients has declined two per cent points, indicating that volumes and client ramp-ups may be slowing.

Infosys has seen high margin services such as consulting and package implementation increase contribution to revenues to 25.3 per cent, from 23 per cent. Fixed-price contracts, which ensure better realisations than time and material contracts, have enhanced contribution to 34.1 per cent. A volume growth of 6.5 per cent has been achieved this quarter compared to a flat in the June quarter with utilisation also being improved sequentially to 73.7 per cent currently.

Repeat business at 99.8 per cent means effective client-mining techniques for Infosys. Taken together, these are key factors that helped the company achieve revenue and profits growth this quarter.

The manufacturing vertical has grown 14.8 per cent sequentially, and contributed 20.1 per cent of overall revenues, indicating that the global financial markets contagion has not spread, until now, to this vertical.

But the contribution from the top 10 clients of Infosys, while indicating lowered client-concentration, also means that ramp-ups from these clients may been delayed or slowed. Volume blended price realisation has been flat.

Europe has seen increased contribution this quarter as has the rest of the world (Asia-Pacific, West-Asia and the like), both having grown over eight percent sequentially. These may take some pressure away from the pain points.

The Infosys stock has shed over 30 per cent in the last one month, since the Lehman Brothers bankruptcy flagged off the recent leg of the credit crisis. In light of failing banks in the US and Europe and heightened mergers and acquisitions, there is a possibility number of individual clients coming down, all of which could lead to lowered IT spends by clients and further vendor-consolidation.

More Stories on : Outlook | Infosys Technologies Ltd | Microscope | Software

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